Economic and Business Implications of Trump’s Visit to the Gulf
President Donald Trump’s May 13-16 visit to Saudi Arabia, the UAE, and Qatar will be a largely transactional affair. While he will signal renewed support for U.S. alliances with the Gulf, drawing a contrast with former President Biden’s reticence to engage with Saudi Arabia in 2021, the focus of Trump’s visit will be to announce deals across the energy, technology, and defense sectors in line with his “America First” agenda of leveraging foreign policy to benefit American workers. Saudi Crown Prince Mohammed bin Salman said in January that the Kingdom planned to invest $600 billion in the United States over four years, but the President later raised the price tag associated with the trip to $1 trillion, including more than $100 billion in arms sales to Gulf countries alone. We have worked with several clients to include their plans in the announcements around the President’s visit, and there may still be time to include additional deals in the news.
The focus of Trump’s visit will be to announce deals across the energy, technology, and defense sectors in line with his ‘America First’ agenda of leveraging foreign policy to benefit American workers.
But it is worth looking beyond the headline deal announcements, some of which may never be fully realized, to assess the longer-term economic and business implications of President Trump’s visit and his overall policy towards the Gulf. Based on recent conversations with senior officials in both the U.S. and the Gulf over the past few weeks, we believe the more lasting changes to U.S. foreign and economic policy stemming from the President’s visit will take shape across three areas:
- Increased supply of oil, potentially resulting from a U.S.-Iran nuclear deal.
- Relaxation of U.S. export controls in the defense, energy, and technology sectors.
- Heightened pressure on Gulf countries to align more clearly with the U.S. in its contest with China.
The trip will provide the President with an opportunity to advance his agenda across all three dimensions and to leave a legacy that endures beyond his administration. Multinationals should begin evaluating potential implications for their industries and operations now.
A new Iran nuclear deal would increase oil supply and lower prices
The Trump administration has charged headfirst into negotiations with Iran over its nuclear program, and we believe the odds of the two sides reaching a deal have increased considerably.
While the administration says that it is seeking a better deal than the JCPOA—the 2015 nuclear agreement negotiated under President Obama, which President Trump withdrew from in 2018—there is strong reason to believe that it will settle for an agreement that is fairly similar. We note here Special Envoy Steve Witkoff floating the possibility of Iran enriching uranium up to 3.67% purity, which was more significant than his subsequent efforts to walk the statement back, and indications by both Witkoff and Iranian negotiators that an interim deal (like the one that preceded the JCPOA) may be necessary if a final deal is not reached soon. Senior Israeli officials have expressed concern to us that President Trump appears strongly averse to using military force against Iran, despite periodic public threats, while senior U.S. officials have speculated to us that they could secure significant Democratic support in the U.S. Senate for a new nuclear deal with Iran. Although Israel remains a wildcard when it comes to Iran’s nuclear program, all indications are that the administration is planning for a deal and not for war. And if President Trump does strike a deal, given that Democrats will likely support it (unlike Republicans under Obama or Biden), it is likely to survive his administration.
All indications are that the administration is planning for a deal and not for war—and if President Trump does strike a deal, it is likely to survive his administration.
Markets have already begun factoring in the likelihood of a deal. Even if an interim deal is reached while a permanent one continues to be negotiated, traders will expect that the Iranians will raise their exports by around 1 million barrels per day within 3-6 months of a final deal. The anticipation of increased production will add to the downward pressure on oil prices that has already been generated by global economic uncertainty and decreased trade. Lower oil prices mean more budget austerity in the Gulf, increasing risk of delayed or non-payment to contractors, and producing ripple effects across regional economies. But Trump knows that the price of oil remains a point of tension between the U.S. and Gulf partners, especially Saudi Arabia. During his first term, he pushed Riyadh to end its oil pricing dispute with Moscow after prices plummeted. The President wants prices low enough to please consumers but high enough not to starve domestic U.S. oil producers. The Saudis, by contrast, seek to protect market share and maintain high prices to fund their diversification efforts. We expect the President to engage Gulf partners in May about the likelihood of a deal with Iran — one that will almost certainly fall short of Gulf preferences including limiting Iran’s support for proxies and its ballistic missile program — and on strategies to manage its impact on oil markets.
We expect relaxed U.S. export controls on nuclear energy, AI, and weapons systems
The larger point about many of the anticipated deals announcements is that they will require a significant loosening of traditional U.S. export controls that is likely to extend well beyond his visit. The more than $100 billion in potential defense sales is expected to include aircraft, advanced munitions, missile defense systems, unmanned drones, and naval assets. Many of these sales have historically required lengthy congressional deliberations, but the administration is likely to now try to push them through quickly. The Trump administration may even attempt to revive the proposed sale of F-35 fighter jets and MQ-9 Reaper drones to the UAE, a package initially announced in late 2020 but paused by the Biden administration due to concerns over the UAE’s ties to China. Civilian nuclear energy cooperation would break even more norms, as the administration is reportedly working towards a 123 agreement with Saudi Arabia that would allow U.S. support for a Saudi program that includes domestic enrichment, a provision the UAE agreed to forgo in its 2009 agreement with the U.S. In general, advancing business deals appears to have taken precedence over longstanding concerns around weapons misuse and nuclear proliferation. While a future administration may adjust export controls, once the most sensitive technologies have been shared, it will be much more difficult to pull back.
Advancing business deals appears to have taken precedence over
longstanding concerns around weapons misuse and nuclear proliferation.
The scale of AI-related deals is likely to dwarf even defense sales. The UAE has already committed to investing $1.4 trillion in the U.S. over the next decade in AI infrastructure and related technology. We expect the Saudis to announce a similarly large commitment during President Trump’s visit. Senior U.S. officials have argued to us that granting greater access to advanced AI processors will give Washington more leverage with Gulf partners, including in shaping their cooperation with China, than restrictive measures would. The Trump administration’s approach will become clearer when it issues an update to the AI Diffusion Rule, originally published under the Biden administration but not scheduled to take full effect until May 15. There remains significant uncertainty around the pending revision, particularly in the light of recent personnel changes at the National Security Council, and the administration may choose to delay a decision. Still, investment announcements from the UAE, and pending ones from Saudi Arabia, appear to reflect expectations of greater access to the U.S. AI ecosystem. This could be achieved by upgrading Saudi Arabia and the UAE to Tier 1 status in the AI Diffusion Rule (if the tiering structure survives in the updated rule), by granting licenses for the sale of GPUs in large quantities (including above the thresholds stated for Tier 2 countries in the Rule), or by approving National Validated End Users in Saudi Arabia and the UAE. Should the tiering structure be abandoned, both countries would be likely be well-positioned to quickly negotiate bilateral agreements that optimize access to advanced GPUs. Regardless of the bureaucratic pathway the Administration chooses, Gulf countries are poised to see their aspirations of becoming central players in AI development come closer to reality.
Regardless of the bureaucratic pathway the administration chooses, Gulf countries are poised to see their aspirations of becoming central players in AI development come closer to reality.
Pressure will mount on Gulf countries to choose between the United States and China
Another defining implication of the trip is that the Trump administration believes it can both sell the Gulf some of the most advanced U.S. technology while limiting and even rolling back the region’s cooperation with China. For years, Gulf countries have deepened commercial, technological, and even military ties with Beijing, testing the limits of Washington’s tolerance. For example, Saudi-China joint ventures on drone and missile components, along with collaboration on cybersecurity and counter-drone technologies, directly challenge the idea that economic engagement with Beijing can be compartmentalized from security affairs. We believe this premise—that the U.S. remains the Gulf’s primary security partner while China is its primary economic one—has become increasingly untenable in Washington. Given increasingly Manichean views towards cooperation with China in the U.S., the Trump administration is likely to put escalating pressure on the Gulf to limit its economic and technological ties with Beijing, which future administrations may find it difficult to unwind. Whether the Gulf will accede to American demands remains unclear, but this visit will be the first of many opportunities to force this question.
Should President Trump escalate pressure on Saudi Arabia, the UAE, and Qatar to scale back their ties with China, the administration has several levers it could use. Tariffs, a favored tool against European and Asian countries, are unlikely to be effective in the Gulf due to the region’s trade orientation toward Asia. Instead, President Trump could seek to link cooperation on defense and advanced technology exports to the Gulf freezing or even severing China ties. Arms sales, space sector collaboration, and access to sensitive technologies such as AI semiconductors could become conditional on demonstrable distance from Chinese firms and investment platforms. Again, the update to the AI Diffusion rule, which seeks to strike a similar bargain, will give an indication of the Trump Administration approach. In its latest annual report, the bipartisan U.S.-China Economic and Security Review Commission, established by Congress to provide legislative recommendations, singled out AI partnerships between Chinese and Gulf firms as a “new vector of vulnerability.” Even where Gulf countries claim to have divested from Chinese holdings, questions remain as to whether those moves are genuine divestments or tactical workarounds designed to placate U.S. concerns. Given President Trump’s emphasis on showcasing strong Gulf alliances, any threats would likely remain tactical rather than strategic, but their mere existence could create enough uncertainty to complicate Gulf-China cooperation in key sectors for years to come.
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For additional information or to arrange a follow-up, please contact Prem.Kumar@dgagroup.com.